Netflix Sued By Shareholders Over Subscription Disclosure

Netflix has been hit with a lawsuit from shareholders angry at a big drop in the streaming giant’s share price, following disclosures about its growth prospects going forward.

It was last month when Netflix revealed that its subscriber numbers had fallen for the first time in ten years. And it wasn’t a small drop in numbers either.

Netflix had added 18.2 million subscribers in 2021, about half the number who signed up in 2020, as it struggled to maintain the pace of growth it had seen during the pandemic.

Share price fall

And in January this year Netflix said it had grown its global customer base to a total of 222 million subscribers during 2021.

But now in its first quarter results released last month in April, Netflix revealed that 200,000 people had left the streaming service in the first three months of the year, well short of its forecast of adding 2.5 million subscribers.

And to make matters worse, Netflix also warned shareholders another two million subscribers were likely to leave in the three months to July.

That resulted in its share price falling 35 percent in April to close at $226.19. That was on top of a 20 percent decline in January, when it first warned of weak subscriber growth.

As of Thursday this week, Netflix’s share price was trading at $204.01.

For comparison purposes, last November its share price had been trading at $691.69.

And this huge fall has made shareholders deeply unhappy, with a shareholder lawsuit being filed in the US District Court (Northern District of California), alleging the streaming giant had misled the market about its ability to keep adding subscribers in recent months.

The lawsuit was filed in the San Francisco federal court on Tuesday, Reuters reported.

It was filed by a Texas-based investment trust (Pirani), and it alleges Netflix and its top executives failed to disclose that its growth was slowing amid increased competition, and that it was losing subscribers on a net basis.

It seeks damages for investors who traded Netflix shares between 19 October 2021 and 19 April 2022.

Russia, inflation, competition

The streaming giant had attributed the quarterly decline to a couple of factors including inflation, competition from other streaming services and its suspension of service in Russia following the Russian invasion of Ukraine, which cost Netflix 700,000 members.

Disgruntled Russian users also recently opted to sue Netflix for loss of service.

Netflix had launched its streaming service in Russia in 2016 and had about 1 million users in that country.

A Netflix spokesperson did not immediately respond to a Reuters request for comment.